Sanford C. Bernstein SDC 2010
A pure play growth opportunity
Andrew BraceyChief Financial Officer
22 September 2010
Forward-Looking Statements DisclaimerThis presentation may include oral and written “forward-looking statements” with respect to certain of Ocado’s plans and its current goals and expectations relating to its future financial condition, performance and results. These forward-looking statements sometimes use words such as anticipate’, ‘target’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’ or other words of similar meaning. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which may be beyond Ocado’s control, including, among other things, UK domestic and global economic and business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, the possible effects of inflation or deflation, the timing impact and other uncertainties relating to acquisitions by Ocado Group and relating to other future acquisitions or combinations within relevant industries, the impact of tax and other legislation and regulations in the jurisdictions in which Ocado and its affiliates operate, as well as the other risks and uncertainties set forth in our IPO prospectus released on 6 July 2010. As a result, Ocado’s actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in Ocado’s forward-looking statements, and persons receiving this presentation should not place undue reliance on forward-looking statements Ocado undertakes no obligation to update the forward-looking statements made in this presentation or any other forward-looking statements we may make. Forward-looking statements made in this presentation are current only as of the date on which such statements are made.
2
• Ocado is an internet grocery operation with a market leading customer offering– Largest dedicated online supermarket in the
world by sales– Fastest growing major grocery retailer in the
UK
• Ocado offers delivery of over 20,000 grocery products to customers from a single, highly automated, 295,000 sq ft warehouse with no shops– Scalable business model– Picks c.1 million items in CFC every day– Margin potential exceeds store-based
competitors– Allows Ocado to guarantee freshness and
quality of its groceries– Product mix: c.55% of products sold ambient,
40% chilled and 5% frozen The Favourite Online Supermarket in Customer Survey 2009 & 2010 nominated for Online Retailer of the Year at 2010 Consumer Awards
Grocer Gold Awards –Online Retailer of the Year2005, 2007, 2009 & 2010Green Retailer of the Year 2009
Highlights Gross Sales
Award winning customer proposition
(£m) (£m)
• Over 240,000 active customers
• Over 100,000 orders per week
• 99.4% of items delivered exactly as ordered
• 97.6% of deliveries on time or early
• 95% product availability for next day delivery
EBITDA (£m) (9.5) 2.2 9.2
Ocado overview
3
5
10
11
13
14
17
23
41
146
Music & Video
Book, news & stationery
Homewares
Furniture & Floorcoverings
DIY & Gardening
Health & Beauty
Electricals
Clothing & Footwear
Grocery
Grocery is the largest UK retail market, with only a fraction online
1 Third party estimates
UK Retail Sales by Sector (2009E)1, £bn UK Retail Online Penetration (2009E)1
2%
3%
4%
4%
6%
7%
9%
24%
48%
Grocery
Health & Beauty
DIY & Gardening
Furniture & Floorcoverings
Book, news & stationery
Clothing & Footwear
Homewares
Electricals
Music & Video
5
Online grocery has shown substantial growth – expected to continue
Implied Total Online Grocery Sales (2025)
UK Online Grocery Sales (2007-14F), £bn1 The Potential Opportunity
• Estimates of the online grocery market’s current size range from £2.8bn to £5.3bn
• IGD predicts the market is likely to grow at a CAGR of over 14% in the next 5 years
• Estimates of longer term online penetration vary; with up to c.40% predicted
1 Third party estimates
6
Late
Early
0% 100%
Total UK Grocery Market
% of shoppers for whom online shopping is more appropriate
Ado
pter
Pro
file
As the online proposition improves over time more of the market becomes addressable
Incr
easin
g ad
optio
n ov
er ti
me
Online Drivers
• Price
• Range
•Availability
• Freshness
•Quality
• Ease of use
• Time
• Reliability
• Information
The online opportunity – driven by the improving online proposition
7
Socio-Economic Group Evolution (2009 Customer Survey1), by Household Income £kpa
Customer demographics broaden as the market matures
21% 18% 22% 21% 23%36%
18% 21%25% 27% 28%
27%26%33%
33% 28%28%
25%35%
27%20% 24% 21%
12%
2004 2005 2006 2007 2008 2009
Over £100k
£60-100K
£40-60K
Less than £40k
1 Based on a September 2009 survey of 2,232 Ocado customers
8
As the channel develops consumers change their behaviour, spending more on each shop
80
90
100
110
120
130
0 10 20 30 40 50
Ave
rage
Spe
nd P
er B
aske
t (£)
Number of Shops
1 Chart shows average spend per basket (excluding delivery charge) across all Ocado orders, grouped by how many orders each customer had made previously
Average Spend Per Basket (£), by Number of Shops1
9
Mobile device checkouts up over 40%in 4 months
50
75
100
125
150
April 2010 May 2010 June 2010 July 2010 August 2010
Inde
xed
Scal
e1
Checkouts on Mobile Devices, by Month1
1 Figures indexed to mobile checkouts as a percentage of total checkouts in April 2010
10
0.0%
2.5%
5.0%
7.5%
10.0%
FY03 FY04 FY05 FY06 FY07 FY08 FY09 YTD10
Postcode Sector
Av. Weekly Penetration(P1-6 2010)1
% Used Ocado in FY092
Order Growth (FY08-FY09)3
Area 1 8.6% 26.8% 23%
Area 2 7.8% 26.8% 19%
Area 3 7.1% 23.0% 30%
Area 4 7.1% 22.8% 19%
Area 5 6.4% 22.3% 15%
Area 6 5.7% 17.6% 20%
Area 7 5.7% 17.8% 22%
Area 8 5.4% 19.8% 28%
1 Weekly penetration by postcode sector, averaged over P1-6 20102 % of customers in a given postcode sector that shopped with Ocado in 20093 Growth in average number of customer orders per week from 2008 to 2009
Unique Households Shopping Weekly With Ocado
Penetration limits have not yet been reached, with Ocadoregularly serving over 5% of households in certain areas
11
Ocado has a unique approach to address the online opportunity
DirectSuppliers
Waitrose Regional
Distribution Centre
Ocado Warehouse (Hatfield)
Customers
Suppliers
Regional Distribution
Centre
Regional Distribution
Centre
Regional Distribution
Centre
Store Store Store Store
Customers
Ocado
c.85% c.15%
• Improved availability• Improves freshness
• Wide range
• Inferior availability • Lost time and freshness of product
• Range of products available limited
Cost Efficiency
CustomerProposition
• Lower wastage (c.0.6%)• No property costs of store network
• More efficient use of capital
• Duplicate unpacking / sorting / shelf stacking at incremental cost• Store wages comprise significant portion of costs
• Significant cost to build new store
Store Picked Model (both in-store and online)
13
• Model difficult to replicate; requires technical expertise, considerable time and significant investment• Business controlled using proprietary software written by Ocado• Warehouse highly customised after many years of iterations with purpose-built machinery and bespoke
code
Website Interface CFC Spoke Last Mile DeliveryVans and Routing
Smart WarehouseControl System
Van availability algorithmsDouble Decker trucks
Fully Integrated Bespoke IT System
IP Overview
Unique approach – enabled by proprietary IP
Custom checkouts CSTM mobile device interface
14
Unique approach – market leading proposition
Ranking¹Customer Proposition How Ocado Delivers
1 Sources: Which? Jun-2009 2 Fulfilment accuracy and product availability shown are for the FYE 2009 3 % of orders delivered on time or early during the week ending 16 May 2010, Ocado’s first 100k order week
Wide Range• Over 20,000 SKUs
• More than most supermarket stores
#1
Product Offering
Price
Customer Service
• Structural advantages allow Ocado to guarantee freshness and use-by dates
• 97.6% of orders delivered on time or early3
• Unique functionality
Joint w ith Tesco and Sainsbury’s
N/A
• Tesco Price Match
• Ocado own brand proposition
• 99.4% fulfilment accuracygiven structural advantages2
Quality & Freshness
Value for Money
#1
#1
#1
Accuracy & Availability
Delivery Service
User-Friendly Interface
15
Ocado innovates – improving the proposition
Product Offering
Price
Customer Service
Range1 12k
1 12k SKUs as at year end November 2007. 16k SKUs as at year end November 2008. 20k SKUs as at year end November 2009. Target of 23k SKUs by the end of 2010
16
16k 23k20k
Continues with the launch of “Switch and Save”…
17
“Switch and Save” Beta Launched in August 2010
17
Improving proposition driving acceleration in sales growth and associated EBITDA
291341
427
189246
FY07 FY08 FY09 P1-6 2009 P1-6 2010
-9.5
2.2
9.2
2.8
8.0
FY07 FY08 FY09 P1-6 2009 P1-6 2010
Gross Sales, £m
EBITDA, £m
Incremental EBITDA margin of 8.1% in 2009 and 9.1% in P1-6 2010
19
• Capex spend plans of c.£80m on CFC1
• This will increase capacity in stages from c.105k orders per week to 180k orders per week
– Increase from 105k to 150k orders per week (c.£850m sales pa) – c.£30m investment
– Increase from 150k to 180k orders per week (c.£1bn sales pa) – c.£50m investment to utilise free space and upgrade existing machinery
• This capex spend will also increase productivity in the CFC by removing the need for some of the less automated tasks (eg trolley pick), therefore improving margins
Ocado is fully funded to increase the sales capacity of the current facility to £1bn CFC1 Capex – Fully Funded
22
• Potential new sites identified in the Midlands
• Expected to be operational by the end of 2012 at the earliest assuming construction commences in Q1 2011
• Facility with sales capacity of c.£1bn is expected to cost c.£210m– Land, construction of the building and internal fit-out (c. £90m) – Material Handling Equipment (“MHE”) (c. £120m at €/£ exchange rate of 1.1)
• Material handling equipment to be best of breed of current design, leading to higher productivity levels
• Capex to sales of c.25% - materially more efficient than most supermarkets
• Limited impact on margins expected at opening– Fixed costs will be similar to those of CFC1, but with no rent– Minimal increase in central costs– Reduced picking costs due to best of breed equipment and improved layout– Reduction in trunking costs
… and to build a new facility with sales capacity of another £1bnCFC2 Capex – Fully Funded
23
Innovation and increasing scale have already led to increased productivity
CFC Productivity, Units Per Labour Hour Delivery Productivity, Drops Per Van Per Week
24
95
114124 123
180
FY07 FY08 FY09 P1-6 2010 Long-Term Target
99106
121131
175
FY07 FY08 FY09 P1-6 2010 Long-Term Target
Considerable operational leverage and margin potential
1 Assumes CFC1 running at max. theoretical capacity of 180k orders per week (equivalent to a 154% increase from 2009 orders per week) and no additional CFCs2 Variable CFC labour costs as a % of sales (57% of total CFC costs exc. depreciation) decreases by 31% due to 45% increase in productivity: (1-1/(1+45%)) = 31% Fixed CFC costs as a % of sales (43% of total CFC costs exc. depreciation) decrease by 61% due to 154% increase in scale: (1-1/(1+154%)) = 61%3 Trunking & Delivery costs as a % of sales decrease by 31% due to a 45% increase in delivery efficiency: (1-1/(1+45%)) = 31%4 Administrative expenses as a % of sales decrease by 61% due to a 154% increase in scale: (1-1/(1+154%)) = 61%5 Increases in scale alone is not expected to have a material impact on the development of these line items. Gross profit is subject to, inter alia, the revised sourcing fee under the new contract with Waitrose and targeted increase in own-label sales. No prediction of the future development of gross profit can therefore be made
% of gross salesPotential
Gross Profit(5) 30.2% 28.8%
Other Income(5) 0.6% 0.7%
CFC Costs(exc. Depreciation) (10.5%) (9.2%) (5.1%)
• Implied potential incremental EBITDA margin of 4.1%(2) (CFC1 only)– Assuming average orders increase to 180k per week(1)
– Assuming Ocado reaches its long term UPH productivity target
Trunking & Delivery Costs(exc. Depreciation)
(13%) (12%) (8.3%)• Implied potential incremental EBITDA margin of 3.7%(3) (CFC1 only)
– Assuming average orders increase to 180k per week(1)
– Assuming Ocado reaches its long term UPH productivity target
Administration Expenses(exc. Depreciation)
(4.7%) (4.2%) (1.7%)• Implied potential incremental EBITDA margin of 2.5%(4) (CFC1 only)
– Assuming average orders increase to 180k per week(1)
– Assuming administrative expenses remain at c.£18 million pa
Marketing(5) (1.2%) (0.9%)
Other Costs(5) (0.9%) (0.7%)
EBITDA 0.6% 2.1% 12%
FY08 FY09
25
Margin potential significantly above bricks and mortar online grocery retailers